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Income Inequality and Macroeconomic Volatility: An Empirical Investigation
Author(s) -
Breen Richard,
GarcíaPeñalosa Cecilia
Publication year - 2005
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/j.1467-9361.2005.00283.x
Subject(s) - economics , gini coefficient , volatility (finance) , inequality , econometrics , standard deviation , economic inequality , income distribution , volatility risk premium , stochastic volatility , macroeconomics , monetary economics , mathematics , statistics , mathematical analysis
We explore the impact of macroeconomic volatility on the distribution of income. Using a cross‐section of developed and developing countries, we find that greater output volatility, defined as the standard deviation of the rate of output growth, is associated with a higher Gini coefficient and income share of the top quintile. The coefficients suggest that a strong effect on inequality resulting from a reduction in volatility: the Gini coefficient of a country like Chile would fall by 6 points if it were to reduce its volatility to the same level as Sweden or Norway. Our results seem not to be driven by the high‐inequality/high‐volatility Latin American countries.